Conditional Suspension of the US Ethanol Mandate using Threshold Price inside a Competitive Storage Model Report as inadecuate




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In 2012, EPA turned down request to suspend the US ethanol mandate on theground that doing so would not result in lower corn prices. Given that ethanol pro-duction accounts for more than 40 percent of the US annual corn harvest togetherwith current trend of extreme weather events, it is likely that a similar request willresurface in the future. We therefore use a competitive storage model to investigatehow a waiver of the US ethanol mandate, conditional on high corn price, might affectcorn prices and consume welfares. It is found that although waiving the mandate whenthe price was at the level in 2012 would only result in moderate decrease of long runcorn prices, the price volatility reductions are much larger. In addition, if the US cornyield in 2013 is as low as it was in 2012, suspending 20 percent of the mandate in 2012will result in a price drop of 18 percent in 2013, higher than EPA's estimate of lessthan 1 percent. Associated with lower corn price is a gain of 7.69 billion dollars in USconsumer welfares.

Subject(s): Demand and Price Analysis

Resource /Energy Economics and Policy

Issue Date: 2013

Publication Type: Conference Paper/ Presentation

PURL Identifier: http://purl.umn.edu/150717

Total Pages: 32

Record appears in: Agricultural and Applied Economics Association (AAEA) > 2013 Annual Meeting, August 4-6, 2013, Washington, D.C.





Author: Roberts, Michael J. ; Tran, A. Nam

Source: http://ageconsearch.umn.edu/record/150717?ln=en







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